FTC tells ITC that banning iPhones, Xboxes is a bad idea (Updated)

Import bans based on FRAND patents could cause "substantial harm" to consumers.

The Federal Trade Commission has requested that the International Trade Commission not consider import bans against Microsoft and Apple products that infringe standards-essential patents owned by Google's Motorola Mobility subsidiary. The FTC sent a memo summarizing its position to the ITC on Thursday, noting that allowing import bans based on FRAND-encumbered patents could "cause substantial harm to US competition, consumers, and innovation."

At the heart of the matter are two ITC complaints levied by Motorola Mobility (prior to the Google acquisition) against Microsoft and Apple. Both Microsoft and Apple filed complaints against Motorola related to its use of the Android operating system. Motorola retaliated by charging that both companies infringe its patents with their use of H.264 and wireless 3G standards, respectively.

The ITC has ruled that Microsoft and Apple do indeed infringe on some of the patents in question. However, Motorola agreed to license those patents on fair, reasonable, and non-discriminatory (FRAND) terms in order to have those patented technologies incorporated into various standards. Seeking exclusionary orders based on such standards-essential patents runs counter to the original FRAND agreement and threatens to dismantle current and future standards-making processes, according to the FTC.

"Simply put, we are concerned that a patentee can make a [F]RAND commitment as part of the standard setting process, and then seek an exclusion order for infringement of the [F]RAND-encumbered standards-essential patent as a way of securing royalties that may be inconsistent with that [F]RAND commitment," the FTC wrote in its memo.

"Hold-up and the threat of hold-up can deter innovation by increasing costs and uncertainty for other industry participants, including those engaged in inventive activity," the FTC said. "The threat of hold-up may reduce the value of standard-setting, leading firms to rely less on the standard setting process and depriving consumers of the substantial pro-competitive benefits of standard setting."

UPDATE: HP, Nokia, the BSA, and other trade groups have also filed letters with the ITC supporting the FTC's position that injunctions and exclusionary orders should not be granted based on FRAND-encombered patents.

...and yet, for some reason, Apple using similarly spurious lawsuits to ban their competitors' products is A-OK.

Must be good to be the king.

To be fair, Apple is not using patents with a FRAND commitment in their spurious lawsuits. They are using their valid design patents with which they were awarded through the system. Completely different problem.

Motorola promised to be reasonable with the royalties, and then made unreasonable royalties.Apple didn't promise to not be a !@#*!@$ and patented a rounded rectangle, and decided to enforce it against other people who made similar rounded rectangles.

(The validity of the various lawsuits will be seen when they're all settled in 2032)

Not too shocking to see the FTC get involved, since the 3G and Wifi patents in particular are areas they regulate, and those standards and the FRAND patents involved in them are a huge part of their policy making work.

Not too shocking to see the FTC get involved, since the 3G and Wifi patents in particular are areas they regulate, and those standards and the FRAND patents involved in them are a huge part of their policy making work.

The FCC regulates 3G and Wifi. FTC is the Federal Trade Commission and the FCC is the Federal Communications Commission.

Did Motorola refuse to license the patented capabilities to Microsoft and Apple? Unless Motorola did or if they licensed them and then asked/demanded more money later, I don't see what the problem is.

FRAND doesn't mean that you don't have to pay, right? Patent holders are just limited in how much they can ask.

That last point is the key one. It's not that they're withholding the patents, it's what they're asking for them. They're asking for 2.25% of the entire device cost, which is orders of magnitude more than everyone else in the same FRAND patent pool is getting for their patents. An ITC judge even said the offer Motorola made was so out of line with the rest of the industry that it didn't really constitute an honest effort to license. When everyone else is getting a penny and you ask for $5.00, it's not FRAND anymore. (At least, that's the contention of Microsoft and Apple, and what is being churned through the courts right now.)

I completely agree with MS' and Apple's position on this, but taking this all the way to warehouses full of inventory on all sides might be the only way to stop the current patent war, or at least throw some cold water on it.

I love how it's apparently okay to ban every new high-end popular Android device from potentially entering the market (HTC One line, Samsung Galaxy S3). That is, phones that can compete with the iPhone. Yet when the tables are turned on Apple/Microsoft, there's suddenly concern about "competition, consumers, and innovation."

You know what though? There's actually a key word in the quote.

"cause substantial harm to US competition, consumers, and innovation."

Keyword: US. Never mind foreign companies like HTC and Samsung - who cares if we ban their devices. This is about increasing US competitiveness. What better way to do that than banning or otherwise making the lives difficult of foreign companies trying to sell competing products in the market? You can see the double standard.

I love how it's apparently okay to ban every new high-end popular Android device from potentially entering the market (HTC One line, Samsung Galaxy S3). That is, phones that can compete with the iPhone. Yet when the tables are turned on Apple/Microsoft, there's suddenly concern about "competition, consumers, and innovation."

You know what though? There's actually a key word in the quote.

"cause substantial harm to US competition, consumers, and innovation."

Keyword: US. Never mind foreign companies like HTC and Samsung - who cares if we ban their devices. This is about increasing US competitiveness. What better way to do that than banning or otherwise making the lives difficult of foreign companies trying to sell competing products in the market? You can see the double standard.

EDIT: FRAND is important for advancing the state of the art in general, but when you have a company (we've always been shameless about stealing great ideas) who's sworn a "thermonuclear war" approach to a competitor, I'm not going to cry when the lawsuits cut both ways.

Funny that both MS and Apple are on the defendant side here. What strange bedfellows these silly patent wars make.

As much as I'd love to see Google force Apple to take some of their own patent medicine (c whut I did thar?), using FRAND patents in this way is bad news for everyone. Even if somehow Google wins, it will just encourage companies to ignore standards and develop proprietary methods for everything.

Did Motorola refuse to license the patented capabilities to Microsoft and Apple? Unless Motorola did or if they licensed them and then asked/demanded more money later, I don't see what the problem is.

FRAND doesn't mean that you don't have to pay, right? Patent holders are just limited in how much they can ask.

That last point is the key one. It's not that they're withholding the patents, it's what they're asking for them. They're asking for 2.25% of the entire device cost, which is orders of magnitude more than everyone else in the same FRAND patent pool is getting for their patents. An ITC judge even said the offer Motorola made was so out of line with the rest of the industry that it didn't really constitute an honest effort to license. When everyone else is getting a penny and you ask for $5.00, it's not FRAND anymore. (At least, that's the contention of Microsoft and Apple, and what is being churned through the courts right now.)

Ahhh - that makes sense now - thanks!-----For grins....

Maybe if they slapped a picture of an apple on the patent paperwork, everyone would be more willing to pay the additional cost/tax...

Interesting to see the parties who are weighing in against Google on this, and in support of Apple and Microsoft. HP (no dog in this fight, at all.) Nokia, in support of APPLE, Verizon in support of Apple, despite the fact that they're backing Samsung in their case against Apple in US courts. Plus some business associations who feel they'll be impacted. It's the weirdest collection of names I've seen in support of the same thing in quite some time. I've not seen anyone except people on the Internet rushing to the defense of Google here, either.

I don't have time to look it up, so someone else please correct me. But if what I recall is right the issue is that MS and Apple were offered the same FRAND license terms / prices that everyone else was, but they REFUSED to pay.

Motorola is trickily claiming that since MS and Apple refused the FRAND offer, that Motorola now no longer has to offer Apple and MS the FRAND pricing, and Motorola instead now wants a higher licensing price.

Someone who knows / remembers please confirm.

Edit: Ok I found where I recalled that from. It was from the Motorola Germany Injunction against and only applies in Germany:

Quote:

In Germany, however, a legal precedent has established that a FRAND defense can only be used under certain conditions. Namely, a company must have made an offer to license the patents in question on FRAND terms and posted a bond for expected future royalties. If a patent holder then refuses the offer and sues, the FRAND defense can be used.

Another thought on FRAND patents:It's rather silly that FRAND patents are less costly to license than regular patents. FRAND patents are essential for something to even work, so really are more valuable then other minor enhancements. FRAND licensing needs to exist and I'm glad it does. But for instance in this case it's kind of silly for Motorola to be forced to license their essential technology for a low cost, when Apple can charge whatever they what or even entirely refuse licensing for their nonessential minor enhancements. It seems like at minimum that if you use someone's FRAND license you should be obligated to offer the FRAND owner, a cross license of your own patents at a similar price...

Personally, I think the best solution (short of eliminating patents entirely) would be to have universal FRAND requirements for all patents. Basically, patents could no longer be used to exclude competition, only to collect license fees. If the parties can't agree on a rate, a court would set the rate for them.

Radio stations would be crippled without the ability to license music through mechanical royalties. Similarly, the use of patents on individual minor aspects of a multifunction device to completely block sale is crippling technology. Universal FRAND requirements would solve or reduce many problems with the patent system. Patent trolls would lose a lot of leverage, because they could at most claim reasonable license fees, and wouldn't be able to extort huge payouts with the threat of blocking sales completely.

While I don't think Motorola should be able to block sales of iPhones and Xboxes, I also don't feel the least bit sorry for Apple or MS because they've both been abusing the patent system to attack Android. For standards-essential patents, it's very important to have FRAND requirements so everyone can compete, but with the current system this leads to a situation where patents representing the results of very difficult and significant R&D efforts end up being worth less than a design patent on the appearance of the device.

Motorola made significant technical contributions to making a phone work, and at most gets a few cents from their competitors (or gets government agencies threatening them if they ask for more), while Apple can try to completely block the sale of competing devices just because they look similar. Universal FRAND requirements would help this situation significantly.

Reading the posts by all the android fanboys in this thread not knowing what FRAND is is making my head hurt.

Not caring for Apple doesn't automatically make one a Fandroid, as it were. Some of us just, well, don't really care for the way they run their shop these days.

I was looking forward to upgrading to a Galaxy S III one day, and the next day I find out Apple is seeking an injunction on its shipment due to what is essentially a fucking patent on a common use of regular expressions. I went from loving Apple industrial design and not really caring much for their strict platform control or software design, to being really fucking annoyed with them right quick.

(Even I myself am taken aback at how much more I began to give a shit once their actions risked affecting me in a direct and obvious fashion. Go figure.)

I love how it's apparently okay to ban every new high-end popular Android device from potentially entering the market (HTC One line, Samsung Galaxy S3). That is, phones that can compete with the iPhone. Yet when the tables are turned on Apple/Microsoft, there's suddenly concern about "competition, consumers, and innovation."

You know what though? There's actually a key word in the quote.

"cause substantial harm to US competition, consumers, and innovation."

It is okay because when all is said and done, Apple has to pay damages and fines if their injunctions were found to be spurious.

Quote:

Keyword: US. Never mind foreign companies like HTC and Samsung - who cares if we ban their devices. This is about increasing US competitiveness. What better way to do that than banning or otherwise making the lives difficult of foreign companies trying to sell competing products in the market? You can see the double standard.

You must miss the point that Motorola is a US company owned by Google?

So, from my non-lawyerly standpoint, if 2.25 really is customary, then Moogle/Gootorola would appear to be on fairly solid ground here. If they offered Apple and Microsoft what they offered everyone else, then I'd say that they were living up to the Non-Discriminatory part of FRAND.

I haven't found any specific listing of similar licensing deals and the royalty rates anywhere. Any help from the masses here?

I get tired of articles that bring up FRAND but then fail to follow up on the next logical question: Patent is FRAND, and company did/did not have a license. Motorolla is wrong for seeking non-FRAND terms on FRAND patents; MS/Apple would be wrong if they completely failed to license said patents (which could explain the aggression shown by Motorolla). FRAND != Free.

I hope they ban everything and I hope a lot of people are inconvenienced. I want irate parents dealing with screaming children because they want an xbox but can't have one. I want hipsters lining the streets waiting for products that cannot be sold. I hope that it is bad enough that all future standards are scared of patents. That the public's perception of patents sour. That companies no longer assert patents because they are scared of the political fallout. That there is political will to sort out the laws behind this patent mess. And I would like a pony, a particularly delicious pony.

I don't have time to look it up, so someone else please correct me. But if what I recall is right the issue is that MS and Apple were offered the same FRAND license terms / prices that everyone else was, but they REFUSED to pay.

Motorola is trickily claiming that since MS and Apple refused the FRAND offer, that Motorola now no longer has to offer Apple and MS the FRAND pricing, and Motorola instead now wants a higher licensing price.

Someone who knows / remembers please confirm.

It's not clear because no one has come forward with their previous agreements with Motorola for those patents that I can tell. I do believe if Motorola was getting 2.25% from everyone, they'd have introduced that as evidence that their pricing was FRAND and that the marketplace has accepted their prices as fair. They've made no such disclosure however, which suggests that this new policy of 2.25% of total device price is a new policy of theirs. Considering on a TV or computer, 2.25% could equal $10-50 easily, and Motorola has been losing money, it suggest they don't have this agreement in place with anyone.

Reading the posts by all the android fanboys in this thread not knowing what FRAND is is making my head hurt.

FRAND - fair, reasonable, and non-discriminatory terms.

FRAND is used often when a group of companies work together to produce standards that enable various companies to create devices, etc, that work together. eg: 3G enables cell phones from different companies all to use the same networks. The companies that participate in the standard creation will often 'offer' their patents for use in the standard, and to ensure a even level playing field for all the other companies do so under FRAND. Such that the barrier for entry is virtually the same for every company.

The issue noted in the above article is that Motorola is enforcing patents that it had commited as part of the standard making process as FRAND, but doing so under unfair and unreasonable terms. As previously noted, Moto wants 2.25% of the cost of the final product for one patent when the rest of the patents required H.264 (decoding of video for playback) ranging in the thousands costs a penny. Thus the "unfair/unreasonable" statement.

In regards to Apple, They have developed/purchased a large number of patents, some of which are arguably obvious, and enforce them to the detrement to quite a few other companies. The "catch" is that Apple rarely if ever agrees to offer their patents as FRAND.

However regardless of Moto's behaviour in the US, expect that the European Union will bring Moto under investigation for discriminatory use of FRAND patents, as they are doing with Samsung right now (for completely different reasons).

So, from my non-lawyerly standpoint, if 2.25 really is customary, then Moogle/Gootorola would appear to be on fairly solid ground here. If they offered Apple and Microsoft what they offered everyone else, then I'd say that they were living up to the Non-Discriminatory part of FRAND.

I haven't found any specific listing of similar licensing deals and the royalty rates anywhere. Any help from the masses here?

It's only Motorola claiming that it's "customary rate", and the blog you link to points out that it is Motorola making the claim. The evidence to support that seems to be weak, since distributing a 2.25% TOTAL DEVICE royalty rate across the dozens of companies involved in the 3G and WiFi patent pools would result in device costs skyrocketing just to satisfy the licensing costs of the industry patents.

Personally, I think the best solution (short of eliminating patents entirely) would be to have universal FRAND requirements for all patents. Basically, patents could no longer be used to exclude competition, only to collect license fees. If the parties can't agree on a rate, a court would set the rate for them.

The problem is that a patent's value is vastly different dependent on application. A design for a $40 snow shovel cannot be worth more than the shovel (so say $15), yet the identical design for an $80 sod cutter might be worth $25 due to the "asking rate" of the product.

Quote:

Radio stations would be crippled without the ability to license music through mechanical royalties. Similarly, the use of patents on individual minor aspects of a multifunction device to completely block sale is crippling technology. Universal FRAND requirements would solve or reduce many problems with the patent system. Patent trolls would lose a lot of leverage, because they could at most claim reasonable license fees, and wouldn't be able to extort huge payouts with the threat of blocking sales completely.

I agree that a universal license scheme makes sense, but it can't be purely set by the licensee or licensor (Apple says their patents are worth $400, Motorola says those patents are worth $4, etc).

It's just about the same problem you see in App Store sales; $0.99 for high volume products, $999 for low volume-high value products.

Quote:

Motorola made significant technical contributions to making a phone work, and at most gets a few cents from their competitors (or gets government agencies threatening them if they ask for more), while Apple can try to completely block the sale of competing devices just because they look similar. Universal FRAND requirements would help this situation significantly.

-Kasoroth

That's the problem with your misrepresentation. As cited here, they asked for $13.4775 per phone, approximately, and not a few cents.

Had they only asked for a few cents I really doubt Apple would have balked at the licensing rate. $13.4775 costs nearly as much as the Retina display Apple uses in their iPhone 4!

So, from my non-lawyerly standpoint, if 2.25 really is customary, then Moogle/Gootorola would appear to be on fairly solid ground here. If they offered Apple and Microsoft what they offered everyone else, then I'd say that they were living up to the Non-Discriminatory part of FRAND.

That rate may be normal but it is normally applied to a component or part of a component that is substantially benefiting from the IP covered by the patent. For example a baseband chip which cost dollars. In this case they are trying to apply that same rate to the whole of an end consumer device (100s of dollars) that contains far more components and unrelated IPA (software) then those affected by the patent. That is why Apple, etc. believe that rate, as applied, to be unfair.

They should also tell the ITC that bans for patents that don't make up the majority of a product. WE would probably avoid this mess if we just set the bar as high as 1%.

randomletters1 wrote:

Funny that both MS and Apple are on the defendant side here. What strange bedfellows these silly patent wars make.

MS and Apple have been bosom buddies for a long time now. They have a mutually beneficial relationship, and all of the pretending to be fierce competitors is just a puppet show for the DOJ and the naive public.

It's only Motorola claiming that it's "customary rate", and the blog you link to points out that it is Motorola making the claim. The evidence to support that seems to be weak, since distributing a 2.25% TOTAL DEVICE royalty rate across the dozens of companies involved in the 3G and WiFi patent pools would result in device costs skyrocketing just to satisfy the licensing costs of the industry patents.

True, but that hinges on how one defines fair and reasonable. There's way too much wiggle room in the F and R of FRAND for the term as a whole to be what I'd consider a good standard.

Moto needs to bring out some backing examples of 2.25% licensing fees, or else they don't have much of a case. Sure does keep the lawyers in Lexuses (Lexi?) and Brooks Brothers suits, though.

[True, but that hinges on how one defines fair and reasonable. There's way too much wiggle room in the F and R of FRAND for the term as a whole to be what I'd consider a good standard.

Moto needs to bring out some backing examples of 2.25% licensing fees, or else they don't have much of a case. Sure does keep the lawyers in Lexuses (Lexi?) and Brooks Brothers suits, though.

100% agreement. Googarola's problem here is that the rest of the industry seems to be lining up behind Apple and Microsoft. Other patent holders in those standard pools don't seem to agree or be amused at that 2.25% of total device cost. Nokia and HP in particular filed with ITC in support of Apple and MS because of FRAND. Both have significant patent holdings in the wireless space. If they were getting 2.25% of device cost, they'd be filing in favor of Google to protect their own revenue stream, not against them.

To be fair, Apple is not using patents with a FRAND commitment in their spurious lawsuits. They are using their valid design patents with which they were awarded through the system. Completely different problem.

Motorola promised to be reasonable with the royalties, and then made unreasonable royalties.Apple didn't promise to not be a !@#*!@$ and patented a rounded rectangle, and decided to enforce it against other people who made similar rounded rectangles.

Well, FRAND or not, they're still spurious. Patenting a rectangle (or a wedge, as a recent article mentions), or things like clicking a phone number to call it are all ridiculous, and even if you're an iFanBoy, you know it. What Apple doesn't tell you is how they rejected licensing anything for years and years because they felt they didn't have to.

Every story every day, the same commenters saying the same shit that has no bearing on reality. If you can't be bothered to understand wtf FRAND is and how this is different from other cases then just STFU and don't comment.